Don't Mess With Taxes

The new option this filing season to directly deposit a tax refund into up to three accounts is benefiting more than just taxpayers. Banks and Uncle Sam are suddenly new best friends forever, as financial institutions tout the benefits of multiple refund deposits.

OK, I'll suspend my cynicism about corporate types long enough to allow that yes, this is a good move for most taxpayers. By circumventing the actual filer and putting the money directly into an account, there's less chance that the tax cash will be wasted on frivolous consumer desires.

Now, I know that we all deserve a treat now and then. And what I might think is wasteful could be something you deem critical to your existence.

But the bottom line is that if you're getting a refund, the government has already had an interest-free loan from you for months. Isn't it about time that you started earning a bit more on your own money?

OK, that's enough of a break from my cynical streak.

When taxpayers -- and bank customers -- take this step, it means the financial institution gets more taxpayer money and potentially more fees associated with more accounts.

Not all banks are charging for new accounts opened in connection with a tax-related deposit. USAToday reports that Citibank is pitching a no-fee IRA for tax refunds. Two other major financial institutions, Wells Fargo and Countrywide Bank, also are pegging tax-season pitches to the new direct deposit option, according to the newspaper.

If you do split your refund into three accounts, make sure that your bank offers a similar no-charge account. And then be sure to find out just how long any fee-free account will stay that way.

You definitely don't want your tax savings eventually eaten up by bank charges.

Careful with those numbers: Whether you send your refund directly to three accounts or just one, make sure you enter all the account info correctly on your tax forms.

As noted in this earlier post, if you enter a wrong numeral for an accounts, you could end up losing your refund completely.

Taking back your tax cash early: If you regularly get back a big tax refund, you also might want to consider adjusting your withholding.

I know some folks intentionally overwithhold as a form of forced savings. But as I noted earlier, when you do that, you don't earn a cent on the money. In fact, the IRS is making even more money off of you.

I have faith in your ability to manage your own cash! You can get more in each paycheck and not waste it! OMG ... I think I'm channeling Suze Orman!

Here are some easy ways to save that extra income once you, not the IRS, have control of it when your new W-4 directive takes effect:

• Increase your your 401(k) contribution amount.
• Check with your bank and payroll office about having the extra income directly deposited into a savings or IRA account each pay period.
• If your company has a U.S. Savings Bond payroll purchase program, enroll in it. You can buy the bonds at half their face value and then the Treasury will be paying you interest instead of the the other way around.

The best thing about any of these direct savings options is that once you set them up, you don't even have to think about it again. Just go about your business and let your extra income do all the work earning you more  money.